The Reserve Bank of India on Thursday pegged the Gross Domestic Product growth rate for the 2020-’21 financial year at 6%. It retained the estimate of growth rate at 5% for the 2019-’20 financial year ending in March, the slowest in 11 years.
However, the central bank’s Monetary Policy Committee decided to keep key interest rates unchanged. The repo rate, or the interest rate at which the RBI lends to commercial banks, will remain at 5.15%. The reverse repo rate was kept unchanged at 4.90%. The reverse repo rate is the rate at which the central bank borrows money from commercial banks. All six members of the Monetary Policy Committee voted in favour of the status quo on rates, the central bank’s statement said.
This was the RBI’s sixth bi-monthly statement of the current financial year. In December, RBI had kept interest rates unchanged after five consecutive cuts.
The RBI is responsible for framing India’s monetary policy, and sets interest rates to keep inflation in control while pushing for growth. A rate increase is typically expected to curb inflation when prices are on the rise.
India’s economy has been faltering over the last two years. The economy grew at just 4.5% in the second quarter of 2019-’20, the slowest in six years. In the last few months, core sectors such as automobiles and manufacturing have witnessed a progressive slowdown because of weakened consumer demand and dearth of investments.
The Monetary Policy Committee also decided to continue with the “accommodative” stance “as long as it is necessary to revive growth, while ensuring that inflation remains within the target”. The central bank said it expected consumer inflation to be around 5%-5.4% in the first half of the 2020-’21 financial year, and 3.2% in the third quarter. In December, retail inflation rose to 7.35% from 5.54% the month before – the highest since July 2014.
This is the first statement from the RBI after the presentation of the Union Budget, in which the government outlined packages for farming and infrastructure. Finance Minister Nirmala Sitharaman proposed to increase the agricultural credit availability to Rs 15 lakh crore. However, she admitted that the government would miss its fiscal deficit target for 2019-’20, and set the probable deficit at 3.8%, 0.5 percentage points above the estimate made in July last year. Sitharaman also said that India’s nominal GDP will grow at 10% in 2020-’21.